2nd UPDATE: Macmahon Warns on Earnings as Mine Work Dry Up

-- Full-year profit now seen at between A$20 million and A$40 million

-- Company cites increasing uncertainty for new construction work

-- CEO Nick Bowen resigns, effective immediately

-- Chief Operating Officer Ross Carroll to take over as CEO

(Recasts the first three paragraphs, adds comments from the chairman and CEO-designate from the fifth paragraph.)

By Robb M. Stewart

MELBOURNE--The long-serving chief executive of Macmahon Holdings Ltd. (MAH.AU) has resigned just as the Australian construction and contract mining company warned its earnings could fall by more than half this fiscal year as projects to mine coal and iron ore dry up.

Macmahon said Wednesday it is bracing for less construction work in the mining sector than it had anticipated even a month ago, when it had forecast earnings would rise by about 20% this fiscal year. It forecast its profit would now likely be as much as 64% lower.

The revised guidance is further evidence of the pressures facing Australia's resources industry, which is struggling with a sharp decline in prices for industrial commodities and rising costs as China's booming economy cools. Small mining companies are struggling to secure financing for new developments, while larger companies such as BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RIO) are retrenching and closing some harder-hit mines.

Macmahon in a statement to the stock exchange said Nick Bowen had resigned as chief executive and managing director with immediate effect and would be succeeded by the chief operating officer of the company's mining division, Ross Carroll.

No reason for the change was given, but Chairman Ken Scott-Mackenzie in a telephone interview said Mr. Bowen was leaving on good terms and remained highly regarded by the company and the wider industry.

Mr. Scott-Mackenzie said Mr. Bowen's successful track record since he had taken over in 2000, transforming a "broken" and regional company, was being overshadowed by the profit warning.

Macmahon's shares fell by as much as 47% when trading resumed Wednesday after being halted since before the market opened Monday. At 0412 GMT, the shares were 38% lower at A$0.3774.

The company said it now anticipates a profit of between 20 million Australian dollars (US$20.9 million) and A$40 million after tax this fiscal year. The company swung to a A$56.1 million net profit in the year through June from a loss of A$2.7 million a year earlier, and last month said it was targeting 20% earnings growth this fiscal year owing largely to additional work it had secured.

The company said costs at a rail project for Rio Tinto had risen sharply and it also had lowered its internal estimate of the volume of new construction work it expects to secure and perform this financial year. However, it said the outlook for its mining business, which had been under the direct control of Mr. Carroll, remained solid.

Mr. Carroll said in an interview that iron ore in Western Australia state and coal to the east were the company's two biggest markets for construction, but it has seen a number of companies scale back expansion plans and cut jobs as prices have dropped this year. In particular, spot market prices for iron ore have fallen sharply in the past couple months which caught companies off guard, he said.

BHP, Rio Tinto, Xstrata PLC (XTA.LN) and others have been cutting hundreds of jobs at coal mining operations in Australia and closing older or loss-making mines. BHP also has postponed the expansion of its iron ore port facilities in the remote Pilbara region, and rival Fortescue Metals Group Ltd. (FMG.AU) has reined in spending and is cutting workers and operating costs.

"As work dries up, we have to constantly review our overhead," Mr. Carroll said, adding the company didn't anticipate having to lay off large numbers of workers.

He added he remained confident regarding the company's contract mining operations, which are the only mining operators at a number of big mine sites and so can't be used by mining companies as "swing capacity" that can be easily reduced.

Mr. Scott-Mackenzie said the company remained on track to complete rail work for Rio Tinto's Hope Downs 4 iron ore mine in Western Australia, which is scheduled to begin production in 2013, but a management review in recent weeks had uncovered a number of troubles and a significant cost blowout. He said additional workers and equipment had been directed to the project to keep to the schedule for laying track.

Macmahon began the A$99 million Hope Downs project for Rio Tinto in 2011, building a 53-kilometer rail line and two bridges. Mr. Scott-Mackenzie said costs for the project were now running at about A$500,000 a day.

Write to Robb M. Stewart at [e-mail]

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